Net flows into equity ETFs from European investors fell to just under €1bn, from €5.4bn the month before. The spectacular fall can be explained almost entirely by a dramatic reversal in European equity flows, as well as a sharp reduction in appetite for financial sector ETFs.
The appreciation of the euro over the summer proved a drag on eurozone equity performance (see graph below) and led to a decrease in demand for the asset class. Net flows dropped from +€1.5bn in July to -€0.3bn in August. Financial sector ETFs, the second best-selling category in July, also saw price declines in August, leading to a decrease in net flows from €1.3bn to €0.4bn over the month.
Currency drives equity markets
US equity ETFs were the only equity sector not to suffer a reduction in net inflows in August, with European investors taking advantage of the weakening dollar to beef up their positions.
Bond ETF flows rose marginally to €2.1bn, with the bulk of net new money being allocated to corporate bond ETFs in the US and Europe.
Separate figures from Morningstar revealed flows into European-domiciled ETFs slowed considerably in August. The inflows of €3.5bn marked the lowest level seen in a one-month period since September 2016.
The reasons for the slackening pace of inflows included net inflows to equity ETFs hit a 11-month low, demand for bond ETFs remained subdued for the second month running, and commodity ETPs suffered net redemptions for the first time in eight months, according to Morningstar.